Philamcare Health Systems v. Court of Appeals (2002) Ynares-Santiago, J.

Ratio decidendi: The insurable interest of respondents husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Petitioner: Philamcare Health Systems, Inc. Respondents: Court of Appeals and Julita Trinos Facts Ernani Trinos applied for a health care coverage with Philamcare Health Systems. In the application form, he answered no to the question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? The application was approved for one year and he was issued a Health Care Agreement. Trinos was entitled to avail of hospitalization benefits and out-patient benefits such as annual physical examinations and preventive health care. The agreement was extended for 2 years. The coverage was increased to P75,000.00 per disability. Ernani suffered a heart attack and was confined at the Manila Medical Center for one month. While her husband was in the hospital, Julita Trinos tried to claim benefits under the health care agreement. Philamcare denied her claim and said that the Health Care Agreement was void because of a concealment regarding Ernanis medical history. Doctors at the MMC discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic. Trinos paid the hospitalization expenses of P76,000. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. One morning, Ernani had fever and died. On July 24, 1990, respondent instituted with the Regional Trial Court of Manila an action for damages against Philamcare Health Systems and its president, Dr. Benito Reverente. She asked for reimbursement of her expenses plus moral damages and attorneys fees. RTC: Judged in favor of Julita Trinos and ordered Philamcare Health Systems to pay and reimburse the medical and hospital coverage of the late Ernani Trinos worth P76,000 plus interest, moral damages of P10,000, P10,000.00 as exemplary damages, attorneys fees of P20,000.00, plus costs of suit. CA: Affirmed the decision of the trial court but deleted all awards for damages and absolved president Reverente. Petitioners arguments A health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code does not apply. The agreement grants living benefits, such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration. Only medical and hospitalization benefits are given under the agreement without any indemnification. Petitioner argues that it is not an insurance company but a Health Maintenance Organization under the Department of Health. Issue: Is a health care agreement an insurance contract? Yes Ruling Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement where one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: (1) The insured has an insurable interest; (2) The insured is subject to a risk of loss by the happening of the designated peril; (3) The insurer assumes the risk; (4)

Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and (5) In consideration of the insurers promise, the insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium. In such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, concealment entitles the injured party to rescind a contract of insurance. The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. The cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: (1) Prior notice of cancellation to insured; (2) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (4) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. Ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is

equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts must be liberally construed in favor of the subscriber, and should be strictly construed against the provider. Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods expired, so the defense of concealment or misrepresentation no longer lie. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. Respondent paid all hospital and medical expenses. She is entitled to reimbursement. Dispositive: The decision of the Court of Appeals is affirmed.